Thursday, December 1 2022

Dealing with the extreme fall in the value of the yen

Editorial

The Yomiuri Shimbun, Japan

The government and the Bank of Japan intervened in the foreign exchange market to buy yen and sell dollars for the first time in 24 years to stem the sharp decline in the yen.

Following the intervention, the value of the yen in the foreign exchange market, which had once weakened to nearly ¥146 to the dollar on September 22, temporarily strengthened to the ¥140 range. Excessive market fluctuations have a major negative impact on the economy, including making it more difficult for businesses to come up with business plans.

However, the central bank continued to ease monetary policy, saying Japan’s economic recovery was slow. If the government and the central bank are perceived as unable to cope with large currency fluctuations, this could accelerate speculative movements. We can expect an intervention to counter such movements. But it remains to be seen how long the effect will last.

Monetary policy differences between Japan and the United States should remain unchanged for the time being. Other central banks, including the European Central Bank, are also raising interest rates across the board.

The situation remains the same, as only the Bank of Japan has been left behind and the yen is likely to be sold. A weaker yen pushes up domestic prices due to higher import costs. Measures are also needed to lessen the pain of soaring prices. The sharp rise in the prices of basic necessities such as energy and food has hit low-income people hard. The government has said it will provide ¥50,000 to each household not subject to council tax, but some observers have noted that recipients of the benefits will be disproportionately elderly.

The government intends to formulate a comprehensive economic package in October. Measures against high prices should be considered so that aid reaches those who really need it, including the generation raising children and non-regular workers.

RM Fusion: Preparing for the Worst

Dr Rais Hussin

Sin Chew Daily, Malaysia

As the Malaysian Finance Minister is busy registering TikToks to convince the public that the country’s economy is on solid ground, Ringgit Malaysia (RM) continues to descend breaking all the technical levels to watch, invariably placing the Malaysia’s external debts in foreign denominations in a very precarious situation. situation.

Also, since Malaysia has very high net food imports, food costs for many Malaysians are expected to rise and run wild. Malaysia’s unbridled politicking is also not helping the ringgit’s situation, on the contrary, basically opening it up to levels not seen in Malaysia’s history for over 24 years.

Malaysia’s foreign exchange reserves also fell precipitously below the psychological mark of US$100 billion after the Federal Reserve’s announcement of US interest rate hikes. Having such low (and potentially lower) foreign exchange reserves is very critical for a country that is heavily dependent on food imports.

It may seem unthinkable that in a situation of a fragile economy, which is just beginning to recover from the Covid-19 pandemic and which faces serious challenges due to disruptions in the international supply chain, the authorities could introduce an interest rate hike. Nevertheless, Malaysia saw three consecutive interest rate hikes from May to September 2022. After all, rising interest rates are also meant to ward off currency depreciation.

However, given the specifics of the current global and local situation, interest rate hikes can do little to combat inflation or ringgit depreciation. Inflation, much of which stems from energy and other supply shocks, would not be resolved by tightening the money supply.

Nevertheless, Finance Minister Tengku Zafrul Aziz is quick to assure the public that there is no economic crisis in sight. The finance minister further pointed out that exporters would welcome the depreciation of the ringgit in a pound-like statement, likely without having a clear representation of exactly how it would happen.

While this is about weakening the ringgit’s stimulus demand for Malaysian exports, we also need to understand what it will take to increase production capacity to meet this growing demand. Malaysia has a severe shortage of highly technically qualified people in all sectors.

Regarding the availability of credit, locally Bank Negara Malaysia has raised the interest rate by 75 basis points since May 2022, discouraging business expansion. In the end, although the Minister of Finance and other passionate ‘proponents’ of ringgit depreciation accuse their opponents of only looking at ‘one side of the coin’, they themselves seem to suffer from short-sightedness, pecking and making brushes the size of books. -stroke instructions while leaving many parameters out of the equation.

The only credible way to fight inflation and currency depreciation simultaneously is to develop a larger domestic market, less and less dependent on imports and a seemingly favorable position as a commodity exporter.

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